Contributors

Saturday, October 29, 2011

Recently we’ve been hearing grumblings about how Verizon is blocking the Google Wallet on the upcoming Galaxy Nexus. One of the arguments is that Isis has a legal lock on any wallet that goes on an Isis carrier.

But let’s think about this for a second. Isis has no wallet right now; Google does. Why not let Google do the heavy lifting now, so that Isis can benefit later? Just because you have a mobile wallet means nothing.

Let's say there was no Google wallet. Isis would be basically alone. It would have to incur, with its partners the expense of promoting and educating the public. It would also have to gather and sell the merchants. Google can do this now, and save Isis time and expense in doing so.

So what does Isis have to fear? It might think, "Oh no, if we let Google in, it will lock up the market on the mobile wallet!" Sorry, folks, but it's software. And the phones change every year and a half. So the likelihood that any software player will have a lock is basically impossible.

What about gathering merchants? Would Google have an early edge on locking in merchants? Nope, wrong again. In payments, it’s the same Mastercard Paypass that Isis would be using, so getting Google to push for merchants means more locations all ready to use Isis when they do finally have a wallet.

But what about the value-add like coupons and loyalty that Isis plans to potentially profit from? With VeriFone/Hypercom becoming the de facto "standardizer," we’re likely to see them define the standards that both Google and Isis can use. The merchants will pick the best of the bunch and not get locked in for 20 years. Technology is moving faster and faster, and with that speed no one will be locking in anything for the near, or long, term future.

If Verizon simply allows Google Wallet on its network, it gets an edge over any other carrier in the U.S. today. That means a reduction in churn. Verizon also gets Google as a promoting partner to lock in consumers, get them to want mobile payments, get retailers secure on mobile payments, and, therefore, create the perfect situation – at near zero expense. It could have three to five times as many merchants next year accepting mobile payments than it would be if it blocks the Google Wallet.

Blocking the Google Wallet on the upcoming Galaxy Nexus would be Isis and Verizon shooting themselves in the foot. Let Google have its day. There are multiple wallets to come, all to be carried on a single phone. Google’s ambitions are global, something Isis can never dream of. So there is an advantage to both parties at this point in the early launch days of the mobile wallet.

Right now, Isis and Verizon need to see the Google Wallet as the geeky rich best friend from the movies, the one the mean girls takes advantage of. When Google Wallet gets everything built, they cut the rich girl off and take advantage of it. It doesn’t sound very nice, but we’re talking about a mobile carrier and a mobile wallet. Who ever thought this would be nice?

If Isis wants to slow down or screw up mobile payments, it blocks Google. But if it wants to create opportunities for itself, my suggestion is let the Google Wallet in. Let Google push. Let Google promote. Let Google sell. Then Isis can come in to the party with a bigger, better environment.

Thursday, October 20, 2011

EMV: What does it mean for Acquirers?19 Oct, 2011 21:10 With Visa’s recently announced U.S. EMV initiative, massive infrastructure changes loom on the horizon for card acquirers. To ready themselves for this change, acquirers can think about breaking down the implementation into three buckets: device enhancements, enhancements to acquiring systems and customer service.While daunting, the complexity of the EMV implementation can be somewhat tempered by installing the new hardware in two phases, starting more simply with EMV-capable devices that can be upgraded later down the line. Sometimes it is just a software upgrade that can bring the devices fully up to EMV when needed. In addition, EMV acceptance device configurations need to include key certificates.In terms of system enhancements, acquirers need to update transaction processing systems to handle additional data processing elements and EMV scripts as well as update switch interfaces. Storage of Transaction Certificates – or EMV e-receipts that prove the transaction took place – need to be automated and have the ability to send changes in case of charge disputes. Lastly, acquirers need to think through how these infrastructure changes affect the customer service end of things: merchant training and support, consumer training and dispute management all need to be considered.The clock is ticking as Visa has set an April 1, 2013 deadline for U.S. acquirer processors to support merchant acceptance of chip transactions. Are you ready?

Tuesday, October 18, 2011

PayPal Thinks Big Offline: Exploring PayPal’s Seamless Shopping Visionby RUSS JONES on OCTOBER 17, 2011Every year I try to attend what I think of as the PayPal Developers Conference. This year what used to be the PayPal X Innovate Conference was expanded to include eBay app development, Magento app development, and –– most importantly –– X.commerce app development. X.commerce is eBay’s new end-to-end, multi-channel commerce technology platform. While most of the conference was focused on the X.commerce platform, this is the first of two posts reflecting on what’s new with PayPal.Over the last several quarters eBay has beating the drum about extending PayPal’s momentum in online payments to point of sale in the offline world. More recently, PayPal starting talking about wanting to help brick-and-mortar retailers engage with consumers through the entire purchase process — from customer acquisition, to in-store engagement, payments, and post-purchase retention. This vision is nicely pulled together in a video entitled “PayPal: Future of Shopping” that PayPal released about a month ago.

So, with the marketing campaign in full force, much of the industry was waiting to see what PayPal would say at last week’s X.Commerce Innovate Conference in San Francisco. First, the bad news. None of the shopping capabilities shown in the video were announced. Now, the good news. To show how these shopping concepts might work in everyday life, PayPal did assemble a Shopping Showcase demonstration and provided access to experts to answer questions from curious developers.The Showcase was divided into a number of “vignettes” that illustrated different end-to-end use cases. Most involved some sort of front-end customer engagement utilizing a combination of shopping list, local product inventory, purchase incentives, loyalty points, gift card balances, etc. The vignettes showed how these components could be combined when the consumer is out running errands and shopping on a typical Saturday afternoon.It’s hard to say which scenario would be best received in the market, but there is no question that PayPal is swinging for the fence, so to speak, and rethinking how shopping could be made easier for both buyers and sellers. We especially liked the way a shopping list could be built online and then shared with the merchant upon in-store check-in to match what the consumer wants with product availability and purchase incentives from the merchant.Presumedly, most of the merchandising capabilities would be drawn from the various acquisitions eBay and PayPal have made over the last 18 months –– companies like Milo, Where, etc. They might be accessed as their own app in a SmartPhone or integrated with the PayPal Mobile app. Besides the standard capabilities we’re familiar with today in the PayPal Mobile app, PayPal also imagines users would have a wallet capability that would hold the consumer’s payment methods, current offers, loyalty cards, gift cards, available points, purchase history, and digital receipts.We’re always curious about who controls the wallet and where the payment data resides. In PayPal’s case, the wallet would be one of many functions inside the PayPal Mobile app. And the wallet in the app would act as the user interface to the consumer’s payment data in the cloud. This is in sharp contrast to the models being advocated by both Google and Isis, where the wallet is the app and the payment data is in the phone.While all this merchandising stuff is interesting, let’s get to payments. PayPal envisions three different ways that a consumer might use PayPal for purchases in a brick-and-mortar setting.Option #1 – PayPal Card The PayPal Card is an unembossed, PIN-enabled payment card with the PayPal logo on the front and a magnetic stripe on the back. There is no visible customer name, card number, expiration date, or CVN on the outside of the card. The basic motion for the buyer would be to swipe the card, enter their PIN, and approve of the purchase amount. Essentially, the same motion of using a PIN debit card today. Funding would be drawn from the buyer’s default PayPal payment method.Here’s how it would hypothetically work. When swiped at the point of sale, the merchant’s iPOS software would communicate over an Internet SSL connection with unannounced PayPal APIs to authenticate the buyer, access and apply relevant credits, capture the transaction, and generate a digital receipt. The digital receipt would be stored in the buyer’s PayPal account and a purchase alert sent to the buyer’s mobile device.It’s not clear how consumers would get their PayPal card, but its easy to imagine existing PayPal users would simply ask for one on their PayPal dashboard so they could use their PayPal account at the POS. PayPal stressed a number of times that there is no hardware upgrade required by the merchant –– its simply a software integration. In addition, if the terminal has enough interactive capabilities, the merchant might want to ask the buyer if they want to apply relevant coupons or use loyalty points.A point of clarification here — because this is a payment card used at the POS it’s natural to think there would be some underlying use made of the existing card industry infrastructure. But that’s not the case. The transaction does not use existing card industry “rails” nor is there necessarily a merchant acquirer involved.Option #2 – Empty HandsThe second option, called “Empty Hands”, replaces the swipe of the PayPal Card with the terminal entry of a phone number and PIN. PayPal believes this is what a buyer would use when they don’t have a PayPal Card with them at the time of purchase. Essentially, they have empty hands. The basic motion would be to select PayPal as the payment option (Credit, Debit, PayPal), enter their registered phone number, enter their PIN, and approve the purchase amount. Like the PayPal Card option, funding would be drawn from the consumer’s default PayPal payment method.Behind the scenes, the Empty Hands options would work very similar to the PayPal Card option. Instead of the PayPal Card being the “token” to locate the buyer’s PayPal account, it is the buyer’s phone number.Option #3 – In-Aisle PurchaseWith the third option, called an in-aisle purchase, the PayPal Mobile app is the exclusive interface for the purchase done in-store — and because PayPal fully controls the point of interaction on the mobile devices, it can provide a richer set of features. Instead of just accepting the default payment methods, the consumer might pre-select their preferred funding source for the purchase — and would be able to see and control how various offers and gift card balances might be applied to reduce the total “out the door” cost.One innovation that PayPal imagines is being able to offer installment payments to qualified buyers. The buyer might, for example, want to break a $300 purchase into a series of three $100 installments transactions against the payment method of their choice. Installment payments are an especially interesting twist in the PayPal funding model because they potentially blur the traditional banking industry distinction between credit and debit.Once the purchase is complete, the buyer receives their receipt electronically and can leave the store. In industry terminology, this is unassisted checkout so it will be up to the merchant how they want to verify payment prior to their customer leaving with the goods. For low-value goods or familiar customers it might just be the buyer flashing their phone receipt on the way out the store. Large ticket merchants might want to restrict in-aisle purchases to just goods that are picked up from the dock or delivered to their home.Post Purchase FlexibilityRegardless of payment method, PayPal envisions offering certain qualified buyers the ability to adjust their funding methods after they leave the store, and potentially the option to set up installment payments for select purchases instead of one-time payments. This would have nothing to do with the merchant. They would get paid immediately in real-time for things they sell, irrespective of what funding method is used or when the funds are actually received by PayPal.The capability, which PayPal believes will be unique in the industry, gives buyers the ability to sit down at the end of the day’s errands and adjust how they want to fund various purchases –– perhaps using their bank account for budgeted purchases, their credit card for discretionary purchases, and installment purchases for large ticket items. Not every buyer would qualify for installment payments, and the available installment options might not be the same. PayPal indicated, for example, that small ticket purchases might be available to be adjusted for 7 to 14 days, while larger ticket items might be adjustable up to 30 days.How does this work? As indicated earlier, merchants get paid immediately by PayPal, meaning that purchases are credited in real-time to the merchant’s PayPal account. On the buyer side, PayPal would hold the default funding transactions for some amount of time, giving the buyer the chance to change which source they want to use. Simplistically, you might think of this as a user changing a pending ACH transaction to a pending credit card transaction before it is submitted into the appropriate network at the end of the day. But instead of submitting all transactions every night, as they do today, they would wait days or potentially weeks before they submit the transaction. In the case of installment payments, they are breaking down the single funding transaction into 3 or 6 equal installment transactions.Sounds risky, but PayPal must obviously feel good about their ability to risk manage their customers and their transactions. And if you think about it, this model is not a lot different than their current model. Today, every merchant is funded immediately even though PayPal doesn’t collect the funds for several days, and is not guaranteed that funds will be available for bank-funded purchases.Glenbrook’s ReactioneBay has been very vocal about mobile starting to blur the distinction between online and offline, and that’s something we see very clearly as an important trend in the market. We think buyers and sellers don’t see the distinction today and, quite frankly, don’t care. Consumers just want to buy things and merchants just want to sell things.It is interesting that PayPal is focused on optimizing the shopping experience, and not just the payment experience. As many have pointed out, it’s not just how long it takes to swipe your payment card at BestBuy –– it’s how long you have to wait in line for that privilege. Either way, you have to prove to the door police that you’ve paid for your purchase. So, the emphasis on the overall shopping experience instead of just the payments piece seems right.Of course, the hard part about ramping up any sort of new payment paradigm is breaking open the chicken and egg problem. Here PayPal is working both sides of the hen house –– providing a rationale for merchants to adopt without the capital expense of redeploying terminals, and providing consumers with an incentive to use PayPal as a payment option at POS.For merchants, the value proposition is clearly all about selling more –– auto alerting consumers when a store location a couple of blocks a way has an item in stock; auto matching shopping lists with inventory availability to apply coupons; in-aisle checkout to reduce line abandonment; 100 million active buyers with multiple payment methods on file, etc.For consumers, the value proposition is all about convenience –– interactive access to coupons and credits; loyalty point management; digital receipt tracking and management; no-interest installment payments on large purchases; post-purchase reshuffling of payment methods to better manage daily or weekly budgeting; in-aisle purchasing to eliminate wait times to get out of the store; and on and on.Will it work? Who knows? There are open questions on the actual products, real-world adoption challenges, strength of the value proposition, credibility of the initial partners, and overall economics and pricing. Still, PayPal’s vision is quite ambitious. If this whole thing doesn’t work out, it won’t because PayPal was thinking too small